Devon Clinches Deal for GeoSouthern Assets

A gas processing plant in Fort Worth that is owned by Devon Energy.Credit Matt Nager for The New York Times

Updated, 2:59 p.m. | Devon Energy, an independent drilling company, reached a deal to buy GeoSouthern Energy’s holdings in southern Texas for $6 billion, the two companies announced on Wednesday, in the biggest takeover in the oil and gas industry this year.

The transaction — Devon’s biggest purchase in recent years — will give the company operations that currently produce 53,000 barrels of oil equivalent a day and 82,000 acres in the Eagle Ford shale formation.

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After a banner year for big takeovers last year, energy companies slowed their merger activity in 2013 as they focused on streamlining their operations.

But buying GeoSouthern’s holdings will bolster Devon’s position in one of the most popular fields in recent years. GeoSouthern was one of the first oil companies in the region, and has spent much of its time in recent years focusing on the Black Hawk field.

Devon pointed out that companies with big holdings in oil-rich shale fields like Eagle Ford or Bakken enjoy higher trading multiples than peers that are more concentrated in areas laden with natural gas, which remains extremely cheap.

GeoSouthern’s assets have been largely explored and are ready to be fully developed, with Devon estimating their growth over the next several years at about 25 percent. By 2015, the holdings are expected to generate at least $800 million in annual free cash flow.

“We have considered many acquisition opportunities over the past few years, but none have met our stringent criteria,” John Richels, Devon’s chief executive, said in a statement. “Our patience and disciplined approach have culminated in this outstanding opportunity.”

GeoSouthern, which is privately held, began weighing a potential sale of its assets in the middle of the year, according to a person briefed on the matter. Its owners — including the Blackstone Group, which helped the company secure $1 billion in financing to develop its holdings in the Black Hawk portion of the Eagle Ford — were influenced by a number of factors.

One was that, as big oil companies continued to look for potential new acquisitions, now was a good time to sell. The other was a way to reduce the owners’ tax bill, since a sale would be assessed at the lower capital gains rate.

Advisers to GeoSouthern quietly reached out to a few potential suitors, eventually settling on Devon, this person added.

Shares of Devon, up more than 4 percent in early trading on Wednesday, were 0.3 percent higher by the afternoon, at $62.97.

Devon will pay for the deal with existing cash and credit lines. The takeover is expected to close in the first three months of next year.